We have taken zero exemptions for as long as i can remember. Some years we get $3000 refund…and some years…we have to pay that amount…and some years…we are very close. We don’t have a mortgage, but we do itemize…between taxes and charitable donations, and the like.
Simple W-2 income…with some variation but not that much.
I’m collecting a pension…and my state teachers retirement board sent out a letter telling folks to log on and change as of January 1.say what? There isn’t even a new W4 form yet. They tell us they will be withholding at a 6.9% rate…or something,…supposedly the most they can withhold…unless we change.
If you both earn relatively similar amounts, you fall into the marriage penalty, and both of you claiming zero allowances will not withhold enough. There’s some complicated calculations on the w4 for this situation that result in having to have extra withheld each check, in addition to claiming zero allowances.
That’s my guess anyway.
Hopefully the IRS eases up on under-withholding penalties this year, since everything is so up in the air.
I have to be chuckling at this, since last year we had to send in $20K to the IRS alone. I’m just trying to get in the same planet, rather than in the same square footage.
@notrichenough - thank you for explaining - I looked at the W4 form and I see what you mean - there is a 2nd page worksheet that I should have looked at.
@sylvan8798 - don’t you owe interest and penalties then?
There is a formula for penalties. We only had to pay a penalty once (a couple hundred or so), but we consistently have to pay extra. I have to be a 0% lender to the government, so I’d rather underpay.
Yes, yes we do. Most years its not that bad, although last year it was $500+. Hoping it will be less this year. We have not managed to pay in advance as much as we should because of huge capital repairs the past 4 years running. (Capital repairs depreciated on 27 year scales, like.)
I have almost my entire pay whisked away now, but it’s never enough
As you all are finding out the w4 is a crap shoot at best. Why? Look how complicated our tax system is. Yet the w4 only asks for exemptions. They have no idea if you itemize, take money out for IRAs, 401ks, HSAs, various tax credits, interest/dividend income, etc… How can they possibly withhold the proper amount? It’s just a best guess.
I’ll continue to say it. The best way is to figure out what you will likely owe and divide by the number of paychecks you get. If things don’t change much year to year you should be able to pin it down pretty close. As long as you withhold the smaller of 100% of last years tax or 90% of this years tax you shouldn’t be hit with a penalty.
Our CPA figures it out as best he can and uses the safe harbor so we aren’t charged if we underpaid. We have only paid very little ever in penalties and only paid AMT once (it was less than $1000 different from our calculated standard taxes).
We pay estimated taxes every quarter as directed by the CPA when he prepares our taxes. He tends to be pretty accurate, even tho our income bounces around quite a bit, depending on capital gains, dividends and rental income vs repairs/maintenance.
I figure our CPA will figure things out and keep us as informed as he can and we will proceed.
I’m sitting down for the first time in all this mess because I finally have concrete numbers to deal with – and we are SO FREAKING SCREWED.
We are a W-2 mom and self-employed dad. A family LLC with my MIL provides inconsistent income on top of that. Some years it’s substantial. Taxes are complicated, to say the least. I claim zero exemptions on the W4 and have an extra $100 taken out of each paycheck.
2016 income was the pits, the total pits. We had to borrow left and right; I seriously considered selling a kidney, but I’m too old.
2017 income was markedly better - which can be viewed as unfortunate, as it’s the prior-prior year that’ll count for D19’s first year of college.
Anyway, last year we itemized and came in at $23.8k … And with four exemptions at $16k and dismal overall income, we got a hefty refund.
This year, we’ll itemize again, with more expenses (that varies wildly every year also). But income is up markedly thanks to the LLC – we have no control at all over that. And we’ve lost $16k before I even start the process. I don’t know how to make that up.
Once again, the middle class/upper-middle class doughnut hole has us firmly in its grip. Ugh.
@gatormama. Sounds like preconceived frustration to me. You’re only considering one side of the equation – deductions and exemptions. You have to consider the other side – the reduced tax rates. With an llc you may be able to deduct 20% of your llc income to reduce your taxes. While it is admittedly convoluted, it’s a huge “win” for anyone with a llc business.
I agree with yourmomma, and hope she’s right. When I first looked at it, I thought it was going to cost us a lot more in taxes, because I only added up the losses. Then when I put the different tax rates in, it was significantly less taxes. And with the LLC deal going, which I agree is pretty complicated, that could end up being not near as bad as you think. Don’t give up hope!
Ah, ok, thanks everyone for talking me off the ledge. It is SO typical of me to only look at the negative side, so I truly appreciate the sunny side folks
We are going to be fine for 2017 tax filing. We are TRYING to figure out what to do for 2018…and that will be a challenge. My work and income are very unpredictable. I might be working…and I might not be.
We have been told that there will be no need to redo the w4 form because the IRS is making the situation compatible with the ones we have already completed.
Stay tuned is all i can say…since none of the guidelines have been released…yet.
I just called our CPA this morning. He suggested we try to get our 2017 paperwork together as soon as we are able and meet with him so we can decide whether it makes sense to implement any changes in light of the changes in the tax law. He says that folks making over $250,000 are the ones who got the 9% cut in tax rates and made out the best. Most of the rest got a lot lower tax rates. We shall see.
Wow. I’m surprised the IRS is pushing such a sloppy procedure. We don’t care if it’s right, we just want to get something out there quickly, is not a philosophy I would previously have associated with the IRS. That the IRS will be unable to answer many taxpayer inquiries compounds the egregious plan.
@yourmomma - I disagree. Most people do not have the level of financial sophistication to go to an online calculator or two, caklculate what they will owe in 2018 and manually adjust their withholding with their payroll department. They will take their increased paycheck at face value and be shocked when they owe money come April 2019.
If you think I am wrong, think about how many people have no retirement savings and/or credit card debt. No wills or estate planning. I work in mortgage lending and can attest that most average people are under informed on basic financial info.
